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PREVIEW: BoE November Rate Decision, Minutes Release & Quarterly Inflation Report (QIR)

1200GMT/0700CDT, Press Conference at 1230GMT/0730CDT

  • Current BoE Base Rate: 0.25%, Asset Purchase Facility: GBP 435bln.
  • The MPC is expected to raise its base rate by 25bps to 0.5% with markets believing that recent data is enough to support calls for lift-off.
  • This meeting sees the release of the decision itself, the vote split and the minutes, alongside the central bank’s Quarterly Inflation Report, with the press conference scheduled for 1230GMT/0730CDT.

BACKGROUND

At the previous announcement in September, the MPC stoked expectations of a rate hike at the upcoming meeting with the accompanying minutes stating that “…some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainability to target.”.

Since then, markets have continued to price in expectations for a 25bps hike this week, with market pricing now standing at 85-95% and tightening forecast by 47/65 surveyed by Reuters. In terms of the vote split, consensus is looking for a 6-3 vote (8/22 surveyed by Reuters), although this is far from an outright majority, with 6/22 looking for 7-2 and other forecasts ranging from 9-0 to 4-5 (unchanged).

In terms of the potential dissenters, Barclays (looking for 7-2) believe that Ramsden will likely be a dissenter in lieu of his recent appearance at the Treasury Select Committee, with the bank undecided on whether Cunliffe or Tenreyro will join him in his dissent. (discussed in more detail below).

DEVELOPMENTS SINCE THE PREVIOUS MEETING

GDP

Expectations for a rate hike at this week’s meeting were cemented by last week’s Q3 GDP release which printed at 0.4% Q/Q (Exp. 0.3%) and 1.5% Y/Y (Exp. 1.4%) showing balanced growth across all sectors and in-fitting with the MPC’s August projections. In terms of projections in the QIR, expectations are for little change this time round, although 2017 growth could be nudged slightly higher given last week’s numbers; a view backed by BAML.

Inflation:

Y/Y CPI is currently running at 3.0% (Sep), slightly ahead of the August projections, which looked for inflation to peak in October at around the 3% level (was changed to rise above 3% in October in the September minutes) and the Bank’s 2.8% Y/Y forecast for September. With inflation at current levels, most expect the majority of the MPC to vote for a hike with TD Ameritrade also highlighting that inflationary pressures have come less from exchange-rate pass tspanough and more from domestic factors than expected. The (slightly ahead of expectation) inflation data could be factored into near-term projections, according to HSBC. However, RBC note that a potential higher path for rates over the 2-3yr timeframe could weigh on inflation expectations further out in the forecast horizon.

Labour market:

The unemployment rate is currently running at 4.3% (was expected to trough at around 4.4%) and as such, RBC highlight that this combined with low productivity could suggest that slack has eroded at a quicker rate than anticipated in August; a view that was also referenced in the BoE’s September minutes. Core and headline weekly earnings grew slightly faster than expected in August (2.2% 3m/y vs Exp. 2.1%), however, remain subdued by historical levels and the squeeze on real wages continues, according to Barclays. ING suggest that markets may not see wage growth take-off to the extent the Bank is forecasting due to ongoing Brexit uncertainty, weaker demand and cost pressures relating to the softer GBP. Therefore, look out any potential adjustments on this front.

MPC rhetoric:

Since the September meeting, governor Carney has reiterated that a rate hike might be appropriate over the coming months. Given mounting market speculation of a 25bps hike this time out, he is viewed as favouring “lift-off” as he would have mostly likely used his platform to tip the decision back towards a balance if he was unconvinced on hiking; something which he has not done. Elsewhere, Saunders and McCafferty are almost nailed-on to maintain their calls for a hike whilst Vlieghe followed up last month’s meeting by stating that the “appropriate time for hike might be as early as the coming months”. Broadbent has been largely inconspicuous since July, but markets broadly see him favouring consensus, while Haldane could vote for a hike after flirting with the idea back in June. In terms of potential dissenters, Ramsden, has been ear-marked as a candidate after recently stating that he wasn't in the MPC majority foreseeing a hike in the coming months. Tenreyro, who also appeared at the TSC, noted caution over premature rate hikes, although Barclays ultimately expect her to fall in line with consensus. Finally, question marks also surround Cunliffe after he noted that “we are not seeing sustained signs of domestic inflation pressure” and that he “does not want to anticipate the November rate decision”. See below for RBC’s Hawk/Dove spectrum.

RBC Hawks and DovesCurrent GDP Forecasts (Aug report): 2017: 1.7% (prev 1.9%) 2018: 1.6% (prev 1.7%) 2019: 1.8% (prev 1.8%).

Current Inflation Forecasts (Aug report): 2017 (Q3): 2.7% (prev 2.6%) 2018 (Q3): 2.6% (prev 2.6%) 2019 (Q3): 2.2% (prev 2.2%) 2020 (Q3): 2.2% (prev. 2.2%).

Current Average Weekly Earnings Forecasts: 2017: 2.0% (Prev. 2.0%), 2018: 3.0% (Prev. 3.5%), 2019: 3.25% (Prev. 3.75%).

Current Unemployment Forecasts: 2017 (Q3): 4.4% (Prev. 4.7%), 2018 (Q3): 4.5% (Prev. 4.7%), 2019 (Q3): 4.5% (Prev. 4.6%), 2020 (Q3) 4.4%.

POTENTIAL MARKET REACTION

Please see below for ING’s playbook for the meeting (note, these are the views of ING and not our own as we do not offer trading advice)

ING BoE PlaybookADDITIONAL INFORMATION

For those interested in viewing the August Quarterly Inflation Report please click here
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